Fewer opportunities for opportunity funds

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The Daily Pitch: VC

April 11, 2023

The Daily Pitch is powered by PitchBook’s industry-defining research and best-in-class data

In today's Daily Pitch, you'll find:

Investing in mature startups has become a lot less attractive. The result: fewer opportunities for opportunity funds.

The prevailing sentiment at the recent Venture Debt Conference in New York was that demand is on the up and up.

Our analysts weigh the recent skepticism of AI and machine learning tools in the industry's annual overview.

Today's Top Stories

Opportunity funds fall from favor as VCs go back to basics

(Drew Sanders/PitchBook News)

A common refrain of the recent VC boom was that firms needed more capital to back their star portfolio companies, fearing the loss of seemingly limitless upside.

But like other excesses of the bull market, specialty funds used to back these best-in-class startups are on the decline. Late-stage investing and IPOs have dropped, and early-stage investors suddenly have found that fewer of their portfolio companies are on a path to receive large valuation step-ups.

The result is fewer opportunities for opportunity funds.

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The venture debt hole left by SVB's collapse

For lenders, Silicon Valley Bank's collapse has blown open a huge opportunity to take up more market share of the venture debt that the bank had made its modus operandi. But the question remains on whether equity investment may simply fill the void in early-stage lending.

Those are a few of our analysts' takeaways from the recent Venture Debt Conference in New York. The prevailing sentiment from panelists was that demand for venture debt is on the up and up. Not only does the ecosystem need lenders with high-level expertise and deep industry insights, but on the other side of the table, the selection bar for borrowers has also risen significantly.

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A message from DealCloud, by InTapp

How to improve corporate development deal sourcing

Having a secure, easily accessible deal management system that stores and organizes deal flow information—while also providing firmwide visibility into data—is critical for corporate development teams' success. By making key information easy to access and find, teams can speed up and improve the deal-sourcing process for healthier deal flow.

Read this blog for more actionable tips on how DealCloud can help your team improve corporate development deal sourcing.

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Enterprises are rushing into AI, again. Will this time be different?

Startups are giving the Big Tech giants a run for their money when it comes to the AI and machine learning field. OpenAI, Cohere and Stability AI have made significant gains with their language models and technology, driving much of the attention and resources from investors.

The result has been an explosion in new AI web applications in recent months. But skepticism of AI tools runs deep in many enterprises, and the rapid adoption of these tools is far from certain. Our latest Emerging Tech Research delves into opportunities and risks in PitchBook's annual industry overview of the red-hot sector.

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Reach Capital raises its largest fund despite edtech slowdown

(Courtesy of Reach Capital)

VC interest in edtech may have cooled significantly from the height of the pandemic, but that hasn't stopped Reach Capital from raising a $215 million fourth fund, surpassing its 2021 vehicle by 30%.

The edtech-focused firm attracted LPs with strong returns from its first two vehicles, an impact-driven investment thesis, and an opportunity to benefit from the generative AI revolution.

Recommended Reads

Laid-off tech workers launch "revenge startups" just as money dries up. [The Wall Street Journal]

Co-working retreats and hiking holidays: Inside the biggest startup community you've never heard of. [Sifted]

Activist investors came back in full force for Q1 2023 after a quiet period at the height of the pandemic. [Financial Times]

Since yesterday, the PitchBook Platform added:

16

VC valuations

1923

People

638

Companies

40

Funds

See what our data software can do

The Daily Benchmark:
2020 Vintage Global Secondaries Funds

Median IRR

46.55%

Top Quartile IRR

64.27%

1.36x

Median TVPI

Select top performers

Blackstone Strategic Partners Infrastructure III

NewQuest Asia Fund IV

Dover Street X

*IRR: net of fees

15 Funds in Benchmark »

Check out the latest version of PitchBook Benchmarks

VC Deals

Tonal Systems has shuffled leadership and raised $130 million in a round led by L Catterton, Cobalt, Dragoneer, Kindred Ventures and THVC. The round values the fitness equipment provider at up to $600 million, down from $1.6 billion in 2021, The Wall Street Journal reported.

Insurance verification startup Axle has raised $4 million led by Gradient Ventures, an AI investment firm started by Alphabet.

Fire, a startup that prevents crypto fraud with a browser extension, has secured $3.5 million led by Atomic, Axios reported.

Lithuania-based Perfection42 has raised €1.1 million in seed funding from investors including CoInvest Capital and angel network LitBAN.

PE Deals

Brookfield Asset Management has agreed to invest $1 billion in Avaada, an Indian clean energy developer, the Economic Times reported. Avaada plans to use the funds for its power generation projects and to further its solar cell and module manufacturing and green ammonia plans.

CVC Capital Partners is among the bidders for Berlin-based online nutritional supplement retailer Sunday Natural, which could be worth €600 million to €800 million, Reuters reported.

Snapdragon Capital Partners has invested more than $30 million in Spartan Fitness, the largest Club Pilates franchisee, with over 60 studios.

Exit & IPOs

Durational Capital Management-backed mattress company Casper Sleep has agreed to sell its Canadian assets to Sleep Country Canada Holdings for $20.6 million.

Fundraising

Eclipse Ventures has raised $1.2 billion across two new funds aimed at startups in physical industries including manufacturing, electrification, supply chain and mobility tech, Bloomberg reported. Of the total, $720 million will be dedicated to early-stage startups and $480 million to growth-stage companies.

Bitget, a Seychelles-based crypto trading platform, has launched a $100 million fund to invest in "Web3-friendly" VC firms and projects in Asia.

Corporate M&A

Exxon Mobil has been considering moving to acquire Pioneer Natural Resources, a US shale-focused oil and gas company with a market cap of roughly $49 billion, The Wall Street Journal reported.

Chart of the Day

Source: PitchBook's 2022 Annual European VC Valuations Report

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